2.3: Legal Systems

Question 1

What does a country’s legal system encompass, and why is it important in international business?

Answer 1

A country’s legal system includes the rules (laws) that regulate behavior, the processes for enforcing these laws, and mechanisms for obtaining redress for grievances.

It’s crucial in international business because laws regulate business practices, define how transactions are executed, and establish rights and obligations for those involved.

Differences in legal systems can impact a country’s attractiveness for investment and trade.

Question 2

How is a country’s legal system influenced, and what role does the government play in shaping it?

Answer 2

A country’s legal system is influenced by both the prevailing political system and historical tradition.

The government defines the legal framework for business operations, and laws often reflect the dominant political ideology.

Collectivist-inclined totalitarian states tend to restrict private enterprise, while democratic states with an individualist philosophy favor private enterprise and consumers.

Question 3

What are the three main types of legal systems?

Answer 3

Common Law
Civil Law
Theocratic Law

Question 4

What is the common law legal system, and where is it commonly found?

Answer 4

Common law is based on tradition, precedent, and custom.

It evolved in England and is found in most of Great Britain’s former colonies, including Canada (excluding Quebec).

Judges in a common law system interpret and apply the law, setting precedents for future cases.

Question 5

Describe the civil law legal system and list some countries where it’s used.

Answer 5

Civil law relies on detailed legal codes and is less adversarial than common law.

Over 80 countries, including Germany, France, Japan, Canada (Quebec), and Russia, operate with a civil law system.

Judges in a civil law system apply existing laws and have less flexibility in interpretation.

Question 6

What characterizes a theocratic law system, and what’s the most widely practiced theocratic legal system today?

Answer 6

Theocratic law is based on religious teachings, with Islamic law being the most widely practiced theocratic legal system.

It primarily governs moral aspects of life and is based on the Koran, the Sunna, and writings of Islamic scholars.

While the fundamental principles cannot be changed, there is ongoing debate about their application to the modern world.

Question 7

What is a contract?

Answer 7

A contract is a document that specifies the conditions under which an exchange is to occur and details the rights and obligations of the parties involved.

Question 8

What is contract law?

Answer 8

Contract law is the body of law that governs contract creation and enforcement.

It comes into play when one party believes the other has violated either the letter or the spirit of an agreement.

Question 9

What is CISG?

Answer 9

CISG stands for the **United Nations Convention on Contracts for the International Sale of Goods. **

It establishes a uniform set of rules governing certain aspects of commercial contracts between sellers and buyers who have their places of business in different nations.

Question 10

What are the key differences in contract law between common law and civil law systems?

Answer 10

In contract law:

Common law contracts are detailed with all contingencies spelled out.

Civil law contracts are shorter and less specific as many issues are covered in the civil code.

Drawing up contracts is more expensive in common law jurisdictions.

Resolving contract disputes can be adversarial in common law systems.

Common law systems offer greater flexibility for judges to interpret contract disputes.

International businesses must be sensitive to these differences when dealing with contract disputes

Question 11

What are property rights in a legal sense, and what do they encompass?

Answer 11

In a legal sense, property rights refer to the bundle of legal rights over the use of a resource and the use of any income derived from that resource.

They encompass various resources such as land, buildings, equipment, capital, mineral rights, businesses, and intellectual property like patents, copyrights, and trademarks.

Question 12

What does private action refer to in the context of property rights, and how can it impact property rights?

Answer 12

In the context of property rights, private action refers to activities such as theft, piracy, blackmail, and other criminal actions carried out by private individuals or groups.

These actions can significantly impact property rights by undermining the security and protection of property.

Weak legal systems and law enforcement can lead to higher levels of criminal activity and property rights violations in some countries.

Question 13

What is public action in the context of property rights?

Answer 13

Public action involves actions by public officials, like politicians and bureaucrats, that violate property rights.

Question 14

How does corruption relate to public action?

Answer 14

Corruption is a form of illegal public action where officials demand bribes or engage in unethical practices for various privileges.

Question 15

What does the Corruption Perception Index (CPI) measure?

Answer 15

The CPI, created by Transparency International, assesses the perceived level of public sector corruption in different countries.

Question 16

How is the CPI scale used?

Answer 16

The CPI uses a scale from 0 (highly corrupt) to 100 (very clean) to rank countries based on their perceived levels of corruption.

Question 17

How does corruption affect economic growth in a country?

Answer 17

High levels of corruption can significantly reduce a country’s economic growth rate by siphoning off profits, reducing returns on business investments, and discouraging both domestic and foreign businesses from investing in that country.

This, in turn, leads to lower levels of investment and negatively impacts economic growth.

Question 18

What is the U.S. Foreign Corrupt Practices Act (FCPA)?

Answer 18

The FCPA is a U.S. law passed in the 1970s that makes it illegal for U.S. companies to bribe foreign government officials to obtain or maintain business, even in international transactions.

It also mandates publicly traded companies to maintain detailed records for potential violations.

Question 19

What is Canadian Bill S-21?

Answer 19

Canadian Bill S-21, known as the Corruption of Foreign Public Officials Act, was introduced in Canada to address the bribery of foreign public officials and implement the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, as per OECD recommendations.

Question 20

What are the defenses available in Canadian Bill S-21 for bribery allegations?

Answer 20

Bill S-21 provides two defenses:

A lawful exception defense, where the accused can argue that the payment was lawful in the foreign state or international organization for which the foreign public official works.

A defense based on reasonable expenses, incurred in good faith, made by or on behalf of the foreign public official, and directly related to promoting products and services or fulfilling a contract with the foreign state for which the official works.

Question 21

What is intellectual property (IP)?

Answer 21

Intellectual property refers to property that results from intellectual activity, such as software, music, or a chemical formula, and includes patents, copyrights, and trademarks to establish ownership rights.

Question 22

What is a patent?

Answer 22

A patent grants exclusive rights to the inventor of a new product or process, allowing them to manufacture, use, or sell the invention for a defined period.

Question 23

What is a copyright?

Answer 23

Copyrights are exclusive legal rights that authors, artists, and creators have to publish and distribute their work as they see fit, protecting their intellectual creations.

Question 24

What is a trademark?

Answer 24

Trademarks are officially registered designs and names used by merchants or manufacturers to designate and differentiate their products, helping consumers identify and associate products with specific brands.

Question 25

Why are intellectual property laws important?

Answer 25

IP laws reward and protect the originators of innovative ideas, stimulate creativity and innovation, and provide incentives for research and development, as seen in industries like pharmaceuticals.

Question 26

How does IP protection vary globally?

Answer 26

IP protection differs significantly from country to country, with some having stringent regulations but lax enforcement. International efforts, like the TRIPS agreement under the World Trade Organization, aim to strengthen IP protection worldwide.

Question 27

What is piracy in the context of intellectual property?

Answer 27

Piracy involves the illegal copying and distribution of intellectual property, such as music, software, and counterfeit products, causing substantial financial losses to IP creators and industries.

Question 28

How can international businesses respond to IP violations?

Answer 28

International businesses can lobby their governments for stronger IP protection, participate in international agreements like TRIPS, and take legal action against IP violators to protect their intellectual property rights.

Question 29

What is the TRIPS agreement?

Answer 29

The TRIPS agreement, or Trade Related Aspects of Intellectual Property Rights, is an international agreement under the World Trade Organization (WTO) that aims to establish and enforce stricter regulations for intellectual property protection globally. It obliges WTO member countries to grant and enforce patents lasting at least 20 years and copyrights lasting 50 years.

Question 30

What is product safety, and how does it relate to product liability?

Answer 30

Product safety refers to the standards that products must meet to ensure they are safe for consumers.

Product liability involves holding a company and its officers responsible if a product causes harm, injury, or damage.

Question 31

What are the consequences of a product not conforming to required safety standards in terms of liability?

Answer 31

If a product does not conform to required safety standards, the product liability can be significantly greater.

This can result in civil laws requiring payment of monetary damages and criminal liability laws leading to fines or imprisonment.

Question 32

How do liability laws in the United States compare to those in other countries?

Answer 32

Liability laws in the United States are often more extensive than in many other countries, both in terms of civil and criminal liability laws.

However, other Western nations also have comprehensive liability laws, while less developed nations typically have less extensive liability laws.

Question 33

In the context of global business, what ethical dilemma do country differences in product safety and liability laws present for firms?

Answer 33

Country differences in product safety and liability laws pose an ethical dilemma for firms doing business abroad.

When a firm’s home country has stricter safety laws than a foreign country with more relaxed standards, firms must decide whether to adhere to their home-country standards or take advantage of the laxer local standards.

Question 34

What is the ethical stance regarding firms’ behavior when faced with differences in safety and liability laws between their home country and a foreign country?

Answer 34

The ethical stance is to adhere to the higher standards of the home country.

However, some firms have been known to exploit lax safety and liability laws in foreign countries for business practices that would not be allowed in their home country.